SOURCE: The St. Petersburg Times
DATE: Issue #1038 (4), Tuesday, January 25, 2005
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TITLE: 2 Nations
Claim
War Hero
PUBLISHER: Staff Writer
TEXT: The life of a man whose achievements in battle and at making peace are claimed by both Russia and Finland, even though he fought against the Soviet Union, will be celebrated in the city of his youth on Tuesday.
The 600 exhibits of the Finnish exhibition that opens on Tuesday in the State Hermitage Museum will tell the city more about Finland's national hero Carl Gustav Mannerheim, who last year, more than 50 years after his death, topped a poll of Finland's greatest personalities.
"The exhibition in the Hermitage is meant to honor a man whose life and destiny belong to both nations -Finland and Russia," Hermitage director Mikhail Piotrovsky said.
Finnish veteran Rafael Backman, 94, Mannerheim's adjutant from 1942 to 1946 who arrived in St. Petersburg on Monday by train from Helsinki for the opening of the exhibition, said his boss was a man of outstanding personal qualities.
"You know, he was one of those people, who treated any person with respect, be it a high ranking official or a mere soldier," Backman said. "In response, he earned incredible respect from the others."
"He was always calm and wise. And I think, those qualities helped him achieve success and do so many great things for Finland,' he said.
Born in 1867 to a noble Finnish family, Mannerheim served in the Russian Army for 30 years when Finland was part of the Russian empire.
The exhibition presents many exhibits related to Mannerheim's childhood, including portraits of his relatives, photographs, toys and objects from his family's home.
In 1887, Mannerheim became a student of Nikolayevsky Cavalry College in St. Petersburg. In 1891 he went to serve in a cavalry regiment. In 1892, Mannerheim married Anastasia Arapova, daughter of an imperial general.
Mannerheim's talents for leadership were recognized early. In 1896, holding the rank of lieutenant, Mannerheim was appointed a junior assistant to Tsar Nicholas II at his coronation in Moscow.
The picture of Mannerheim at that ceremony is one of "the highest emotional points of the exhibition," Piotrovsky said.
"For us in Russia the image of Mannerheim is of a tall, well-built guardsman walking in front of the cortege at the coronation of Nicholas II," Piotrovsky said.
In 1904-1905, Mannerheim participated in the Russo-Japan War as a volunteer and was promoted to the rank of colonel for heroism.
In 1906-1908, the General Staff sent him to China to gather military intelligence. However, on his way there Mannerheim also conducted scientific research and brought back descriptions and photographs of the people he met, which are part of the exhibition.
As a Russian officer in World War I, Mannerheim is said to have served honestly and professionally. However, the Bolshevik Revolution of 1917 completely changed his life, as well as the lives of many Finns, as it resulted in Vladimir Lenin granting Finland independence.
He returned to Finland to become a leader in the newly independent country. First, he led the Finnish White army against Finnish Bolsheviks, and later he served as commander-in-chief, regent and president.
Mannerheim had a rare ability to reconcile the national interests of a small, northern country with those of the great powers.
Confronting an external threat from the Soviet Union, which attacked Finland in late autumn 1939, Mannerheim succeeded in uniting the nation in a courageous battle against an enemy of far superior numbers.
Backman said Mannerheim "disliked the Soviet Union because the Soviets destroyed Russia's former system, which he was used to."
"At the same time, he liked Russia as a country and its people," Backman said.
In the Continuation War from 1941, Finland entered into an alliance with German leader Adolf Hitler, but limited its ambitions to recovering the territories that Finland had been forced to cede to the Soviet Union, and the future security of the country.
Mannerheim was sufficiently broad-minded in regard to the affairs of the great powers, to refuse to actively participate in the Siege of Leningrad or to cut traffic connections to Murmansk.
Despite a demand from Hitler's headquarters, Finnish aircraft did not bomb Leningrad, nor did Finnish artillery shell the city. Nevertheless, Mannerheim accepted military assistance from the Germans.
"In Russia, we are used to thinking that many of [Mannerheim's] exquisite and non-standard political decisions had to do with his wish not to harm the city, where he spent his youth," Piotrovsky said.
Backman said Mannerheim "never considered Leningrad as an object to attack."
After the large-scale Soviet offensive against Finland had begun in summer 1944, Finland needed Mannerheim's statesmanship as the Commander-in-Chief of the army and as the newly elected president to be able to defend herself and to withdraw from the war.
The conclusion of a truce in September 1944 together with the expulsion of the German troops from Finnish territory were both mentally and physically demanding tasks for the 77-year-old marshal.
Mannerheim was a national leader who stood above the conflicts of the political parties. The proof of this was that he was not prosecuted in war crime trials staged by Finland at the Soviet Union's behest.
On the contrary, the Soviet government wanted to sign the peace treaty with Mannerheim, who might have been expected to be its arch-enemy.
"I think, the Soviet Union was looking exactly at him because they already knew him and could trust him on that matter," Backman said.
Mannerheim resigned from the Finnish presidency in 1946 on grounds of ill health and old age. He died in 1951 in Switzerland where he was undergoing medical treatment.
The exhibition runs through June 5 in the building of the General Staff on Palace Square.
TITLE: City Tobacco Firm JTI Hit With $85M Backdated Tax Bill
PUBLISHER: Staff Writer
TEXT: A leading St. Petersburg employer and taxpayer and the largest Japanese investor in Russia, Japan Tobacco International, is under investigation by the federal police for alleged tax debts totaling about $85 million dating back to 2000.
No comment was available from the Federal Tax Service.
"Too many criminal cases have been opened against too many factories, so we can't just comment on a particular one," the federal police press service said Friday in a telephone interview from Moscow.
JTI Marketing & Sales said it received a final tax assessment in July 2004.
"The assessment follows a routine tax audit for 2000 and represents a tax claim against JTI of 2.4 billion Russian rubles for tax arrears, interest and penalties," JTI's press-service said Saturday in a written reply to questions from the St. Petersburg Times.
"JTI considers this assessment to be based on an erroneous interpretation of well-accepted business practices," the statement said. "On the basis of advice from local external tax and legal counsel that the assessment was groundless, JTI chose to challenge the assessment through the court system. JTI will fully defend its position and is hopeful that the court will decide the appeal in its favor following a full hearing of the case. As the matter is before the courts, JTI will refrain from any further comment at this time."
The next hearing is scheduled for Wednesday.
Kommersant on Friday reported that the tax authorities examined activity between tobacco factory Petro and the joint-stock venture JTI, which takes care of marketing and sales of cigarettes to distributors. Different schemes were employed to reduce value-added taxes through the setting of prices of deals between the two bodies, the report said. A JTI team from Geneva had visited St. Petersburg and approved the pricing schemes, which have been used ever since and JTI may face similar large claims for 2001 to 2004, the report said.
Backdated tax claims have been made more and more frequently in recent months, but the case against JTI appears to be the first against a company with foreign investment.
According to the 2004 member's listing of the St. Petersburg Chapter of the American Chamber of Commerce, "JTI is the leading investor in the Russian tobacco market and produces more than 30 brands of cigarette.
"Since 1992, it has invested over $570 million in the Russian economy and paid over $800 million in taxes and customs duties," the listing says. "It invested $400 million in constructing Petro, a state-of-the-art tobacco factory in St. Petersburg and JTI's largest factory in the world."
The national tobacco industry was confused about the development.
"I don't remember anything like this happening in this sector [of the economy] before, either in relation to alleged tax debts or the police measures being undertaken," said Vasily Terevstov, head of Tabakprom, the national association of tobacco producers, quoted by his press service in a telephone interview Friday.
Sergei Osutin, head of the board of directors of city consultancy OSB, saw the case reflecting the government's unhappiness with companies using offshore schemes to lower tax payments.
"There is the spirit of law and the letter of law and the spirit of law says that everybody has to pay taxes, while according to the letter of law there are different schemes that are being used by companies to lower taxes; there is nothing illegal in that," Osutin said Friday in a telephone interview.
"This is not the first organization to uses offshore schemes to reduce its tax payments, but it is now clear that the state has decided to prosecute such companies," he said. "This is not unique to Russia. Schemes under offshore companies are set up for the sole purpose of reducing tax are frowned on throughout the world. As for going to court, it is clear that the company's lawyers will continue to insisting they are right, but recent practice has shown that the state has more chances here."
In November the Moscow arbitration court ruled in favor of tobacco company British American Tobacco (BAT), which queried actions taken by the State Audit Chamber in September 2003. The authorities examined seven tobacco factories belonging to BAT and concluded that they were selling cigarettes at lower than market prices.
The court ruled that the audit chamber had no business investigating the activities of a private company because, according to the law, the investigators have a right to examine only companies that receive financial support from the budget.
JTI, formerly known as Japan Tobacco, paid nearly $8 billion in 1999 for R.J. Reynolds International, the international tobacco unit of RJR Nabisco. The company, whose products include Camel, Winston and Salem cigarettes, now operates in 70 countries, including Belarus and Ukraine.
With 16.2 percent of the Russian market, JTI is running neck and neck with British American Tobacco (16.7 percent) and Gallaher (17.1 percent) for the No. 2 spot, according to Business Analytica, a research firm. The maker of Marlboro, Altria, formerly Philip Morris, holds the top spot with 26.3 percent.
JTI is two-thirds owned by the Japanese Finance Ministry and is publicly traded.
The Japanese Embassy in Moscow said it was aware of the case, but declined to comment, citing the ongoing legal challenge.
The conflict has become public at a time while the Kremlin is considering what will be discussed during President Vladimir Putin's next visit to Japan.
The investment climate between Russia and Japan is improving, according to the Japanese embassy in Moscow. At the end of February 2003, investments for the previous year totaled $1.9 billion, making Japan the 8th biggest investor country in Russia that year. JTI is among the most biggest projects financed by the Japanese businesses that embassy mentions. Others are the energy sector on Sakhalin Island and the Asakhi Garasu glass production plant in the Nizhny Novgorod region.
Staff writer Maria Levitov contributed to this report from Moscow.
TITLE: Report: Darkin Seeks Putin's Nod
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW - Primorye Governor Sergei Darkin has reportedly become the first regional leader to ask President Vladimir Putin for his endorsement, and he might resign if he does not get it.
Following a provision in the law that eliminated gubernatorial elections and went into effect Jan. 1, Darkin formally asked Putin for his blessing last week, Kommersant reported Monday.
A rejection might mean that Darkin, who has five months left before his term expires, would resign immediately, said Alexei Titkov, an analyst who tracks regional politics at the Carnegie Moscow Center.
"Sergei Darkin is so far the first and only person to do that," Titkov said. "This is going to set a precedent for how the president reacts."
No confirmation was available from either the Kremlin or Darkin's administration on Monday.
TITLE: IN BRIEF
TEXT: Square for Sobchak
ST. PETERSBURG (SPT) - A square named after former St. Petersburg mayor Anatoly Sobchak will appear in the city soon, Interfax reported Thursday quoting Legislative Assembly deputy Alexei Kovalyov, head of the city's naming commission.
On Monday last week, Governor Valentina Matviyenko signed decree that the square in front of the Kirov House of Culture near Bolshoi Prospekt on Vasilevsky Island should be named after Sobchak, Kovalyov said.
"This is an absolutely correct decision because the square is located by the law department of St. Petersburg State University where the political career of Anatoly Alexandrovich [Sobchak] started, Kovalyov was quoted as saying.
Latvia Eyes Convention
RIGA (SPT) - Latvian Prime Minister Aigars Kalvitis said the Baltic state's parliament could ratify an international convention on the protection of national minorities by mid-summer, Interfax reported Friday.
"The government is stable enough and for this reason ratification of the convention and discussion about it would not threaten the ruling coalition," he was quoted as saying in an interview on Latvian Public Radio.
Ethnic Russians are the largest ethnic minority in Latvia, and their treatment has often been the subject of complaints by the Russian government.
Kalvitis said that the convention should be ratified with certain specifications, such as the sole use of Latvian for street names and in the work of municipal councils.
"Politicians exaggerate the dangers of the ratification," he said. "Lithuania and Estonia have done it and there were no problems."
No Show for Stalin
VILNIUS (SPT) - Lithuanian President Valdas Adamkus said he would not come to Moscow to participate in 60th anniversary celebrations of the defeat of Nazi Germany if a monument to Josef Stalin is erected for the celebrations, Interfax reported Friday.
"Participation in the opening of the memorial for a person that brought so much pain to Lithuanian citizens, who headed the state that occupied Lithuania and than exiled Lithuanian people would be the same as to praise a butcher," Interfax cited Arturas Paulauskas, speaker of the Lithuanian parliament as saying Thursday in an interview for the National Lithuanian Radio.
A decision for the Lithuanian president to participate in the celebration would not be simple, he said.
Of the three Baltic presidents, only Latvian President Vaira Vike-Freiberga has confirmed she will attend the celebrations. Moscow dismissed reports last week that a bust of Stalin would be unveiled during the celebrations.
New Metro Station
ST. PETERSBURG (SPT) - A new metro station, Komendantsky Prospekt, will open on April 2, Interfax reported Friday quoting Governor Valentina Matviyenko.
Vadim Alexandrov, head of Metrostroi, the city metro construction company, said workers are completing installation of security systems, communication and escalators, the report said.
By 2008 City Hall plans to open another 4 stations on the new Frunzenskaya line with connections to the stations Ploshchad Mira-2 and Sadovaya.
The stations will be called Zvenigorodskaya, Pushkinskaya, Obvodnyi Kanal and Volkovskaya.
"We are discussing taking the line above the ground from Molodyozhnaya station, which would make the construction 1.5 times cheaper," Matviyenko said, added that the federal budget will transfer 715 million rubles ($25.5 million) to the city this year to finance metro construction.
Admiralteiskaya metro station is scheduled to be completed by 2008, the report said.
TITLE: Chernobyl Hunger
Strike in 3rd Week
PUBLISHER: Staff Writer
TEXT: A group of 10 men who took part in the clean up of the 1986 Chernobyl nuclear accident and who have been on hunger strike in Sestroretsk for the last 13 days were joined by a fellow "liquidator" from Saratov on Sunday.
The group are demanding higher compensation for the damage they suffered to their health from the radiation.
Shavkat Nazarov, who came from a remote village of Saratov region said he heard about the hunger strike by chance from his friends who were watching television late at night.
"In our region this is not like it is here," Nazarov said Monday in a telephone interview Monday. "[All opposition] is completely pressed to the ground."
"Not a single word was said about this hunger strike on state-controlled channels Pervy Kanal and Rossia," he added. "It's was only because my friends were watching the program Postskriptum on a Moscow city channel after midnight that they heard about it and told me."
Nazarov decided to go to St. Petersburg.
"I completely support the demands," Nazarov said. "Why does President Vladimir Putin, who we voted for, deprive us of our money? If he hasn't got not enough money to pay to the Paris Club [of debtors], I can give him 100 rubles a month to do that. I don't know how many years I have left to live, but I would like to look Putin right in the eye and ask him what has he done."
Sergei Kulish, the head of the group, said the health of the strikers is constantly worsening. An ambulance was called again on Monday.
"The strikers have heart and stomach problems, but we won't stop the hunger strike," he said Monday in a telephone interview. "We don't believe officials any more."
At the weekend, City Hall officials visited the strikers and made more unconvincing promises, Kulish said.
TITLE: Kremlin:WWII Pact Can Be Reviewed, Not Revoked
PUBLISHER: The Associated Press
TEXT: MOSCOW - The notorious 1939 pact between Nazi Germany and the Soviet Union that divided up much of eastern Europe is open only to historical re-evaluation, a Kremlin spokesman said Saturday, suggesting that Moscow isn't prepared to support a legally binding renouncement of the agreement.
"At present, only the historical evaluation of the Molotov-Ribbentrop pact is possible," Dmitry Peskov, deputy press secretary to President Vladimir Putin, told reporters. "There is no possibility of its juridical evaluation due to current realities."
He did not elaborate, but the statement appears to dampen expectations, created this week by Estonian President Arnold Ruutel, that the Kremlin was ready to disown the pact during the May celebrations in Moscow to mark the 60th anniversary of the Nazi defeat in World War II.
Putin, Ruutel told Estonian national broadcaster Eesti Raadio that Putin had told him that Russia, as the legal successor of the Soviet Union, supported annulling the pact "and considers this the right thing to do."
The Kremlin's statement after the meeting, however, didn't mention the pact, and Kremlin spokespeople initially refused to comment.
The 1939 nonaggression pact named for Nazi Foreign Minister Joachim von Ribbentrop and Soviet Foreign Minister Vyacheslav Molotov was signed in secret and carved much of Eastern Europe up between the two countries, including the Baltic countries of Estonia, Latvia, and Lithuania, which were placed under the Soviet sphere of control.
Soviet forces occupied the Baltic states in June 1940 but were driven out by the Germans a year later. The Red Army retook the Baltics in 1944 and the three countries were reincorporated back into the Soviet Union. They became independent in the Soviet breakup of 1991, and all three joined the European Union last year.
Peskov said that "from the Russian point of view, the best step in the development of Russian-Estonian relations would be the signing of a political declaration on the fundamentals of relations and a border delineation treaty" during the 60th anniversary celebrations.
Russia has tense relations with the Baltic nations and has ratified a border agreement only with Lithuania. The Baltic nations accuse Russia of bullying and of failing to adequately acknowledge the Soviet occupation. They have asserted their ethnic and linguistic identities, upsetting their significant ethnic Russian minorities and prompting accusations of unfair treatment from Moscow.
Russia has invited the three Baltic leaders to Moscow on May 9 for the World War II anniversary celebrations, but only one, Latvian President Vaira Vike-Freiberga, has agreed to participate. She has called on Russia to denounce the pact.
TITLE: Tow-Away Firms Busy
PUBLISHER: Staff Writer
TEXT: With City Hall about to hold a tender next month for a single contractor to handle removals of illegally parked cars in the city, contractors hoping to be chosen have been busy removing such cars.
Since Sept. 15, when City Hall adopted a resolution to hold a new tender for a single operator, about 8,000 cars have been towed away, Izvestia reported Friday.
Winning the tender is attractive; the sole operator could earn up to $200,000 a month in revenue, the report said.
In 2001, the city selected several companies to tow away cars parked illegally. The biggest one of them is City Center Spetsavtotekhnika. Since then about 50 tow trucks have been on duty to remove illegally parked cars from sidewalks and intersections.
Sergei Bugrov, head of St. Petersburg traffic police, said the winner of the administration's tender will be chosen depending on factors such as the location of the company, the time needed for tow-away vehicles to arrive at illegally parked vehicles, and the number of its tow trucks, Izvestia reported.
Viktor Granev, deputy head of the city's traffic police, said 70 percent of cars are removed for breaking parking rules. The most troublesome spots for parking are Moskovksy railway station, Ulitsa Sadovaya, and Nevsky Prospekt, the report said.
The moves are unlikely to please drivers who already faced clogged streets and limited parking opportunities, especially in the central city.
Dmitry, 32, who declined to give his last name, said recovering his car after it was removed from a no-parking zone in the city center was expensive.
"I had to pay 2,950 rubles ($105.40) for the towing, 100 rubles to traffic police as a fine, 12 rubles per hour for having my car at a penalty parking lot, and 700 rubles on a taxi, which took me to the numerous places I had to go to get my car back," he said in a telephone interview.
He said he had been treated unfairly; many other drivers had parked illegally where he had parked, but not all their vehicles were removed, he said.
"I had the feeling they do it selectively," he said.
TITLE: Beslan Families Block Road
PUBLISHER: The Associated Press
TEXT: MOSCOW - Hundreds of distraught parents and grandparents of children who were killed in the Beslan school massacre blocked a key highway in North Ossetia for three days late last week to underline demands that the republic's president step down.
The protesters also called for an international investigation into the Sept. 1-3 terrorist seizure of the school, which left more than 330 hostages dead.
The protest ended late Saturday after Dmitry Kozak, President Vladimir Putin's envoy to the Southern Federal District, promised to visit the area Tuesday.
North Ossetian President Alexander Dzasokhov met with the demonstrators Friday in a failed attempt to calm their anger.
"If you have questions about who went where, or who said what, I am not involved in the investigation," Dzasokhov told protesters, Itar-Tass reported.
He also warned against actions that could lead to strife and said there were unspecified, "invisible" people seeking to use the situation to achieve political goals.
Some 400 protesters rallied on the main highway leading to Beslan from the republic's capital, Vladikavkaz, on Thursday and Friday. Alan Doyev, spokesman for the North Ossetian Interior Ministry, said Beslan residents were helping the protesters, bringing wood for bonfires, sandwiches and warm clothes. State television showed images of people sitting around fires and holding pictures of dead and missing children.
Kozak spoke by telephone with the protesters Saturday and told them that Dzasokhov's future tenure must be solved "exclusively by legitimate means," Kozak's spokesman Fyodor Shcherbakov said.
TITLE: IN BRIEF
TEXT: Second Nenets Round
NARYAN-MAR (SPT) - The last gubernatorial elections in Russia held in the Nenets region north of Arkhangelsk on Sunday failed to produce an outright winner and a second round will be held Feb. 6, Interfax reported Monday.
Alexander Barinov, the federal inspector in the region won 22.39 percent of votes while his competitor Igor Koshin, a deputy in the regional parliament got 20.66 percent, according to the local election commission. A turnout of 62.01 percent of the region's 29,915 registered votes was recorded.
Putin's Rating Down
ST. PETERSBURG (SPT) - President Vladimir Putin's rating has fallen "by almost 4.9 percentage points" in St. Petersburg, local news agency REGNUM reported Monday, quoting Roman Mogilevsky, a local sociologist.
The rating of Federation Council Speaker Sergei Mironov has dropped by 4 percentage points and State Duma's speaker Boris Gryzlov is down by 3.4 percentage points, while Prime Minister Mikhail Fradkov suffered the largest drop of 8 percentage points. The changes in ratings are linked to social reforms, Mogilevsky said.
Afghanis Attacked
ST. PETERSBURG (SPT) - Two Afghanis were shot from a passing car on Ulitsa Shevchenko in downtown St. Petersburg on Sunday, Interfax reported Monday quoting the city police.
After the shooting the unidentified attacker got out of the car and grabbed a bag with $20,000 in it from one of the victims. Both Afghanis were hospitalized with leg injuries, the report said.
'Organizer' to Be Tried
ST. PETERSBURG (SPT) - Vladimir Soloveichik, a member of the Citizens' Initiative movement, is to be tried next Monday for his alleged participation in the organization of protest actions against the reform of entitlements, Fontanka.ru reported Monday.
On Monday, the city court heard evidence in Soloveichik's defense.
New Seleznyov Post?
MOSCOW (SPT) - Former State Duma speaker and current Duma deputy, Gennady Seleznyov, may soon become head of the Russian Federation of Horse Sports, Interfax reported Monday quoting the federation's representatives.
The Federation of Horse Sports is currently headed by Yelena Baturina, wife of Moscow mayor Yury Luzhkov.
TITLE: Chubais Blasts State For Climate of Fear
PUBLISHER: Staff Writer
TEXT: MOSCOW - Unified Energy Systems CEO Anatoly Chubais lashed out at Prime Minister Mikhail Fradkov's government last week for not addressing what he called the worst crisis of confidence for businesses "in 15 years."
Aggressive tax probes and a lack of predictability by officials has created "tensions" that must be alleviated for businesses to continue to develop, Interfax quoted Chubais as saying at the Council on Competitiveness and Entrepreneurship's first meeting of the year.
The council, whose members include Cabinet members and top executives from major state-owned and private companies, is charged with advising the government on ways to improve Russia's economic competitiveness.
"There has not been such a difficult situation for 15 years," Chubais told Fradkov, who chaired the meeting late Thursday. "When entrepreneurs don't know what will happen they will base their views on a pessimistic scenario."
Chubais' comments ended months of silence by one of the country's most experienced politicians on the growing concerns of investors and businesspeople, which have been fueled by the chaotic dismemberment of Yukos and tax probes into companies such as VimpelCom and Japan Tobacco International.
Under some of the best external economic conditions for decades, Russia's economy is slowing after a six-year boom as confidence lags and key reforms remain on hold, according to estimates from the Economic Development and Trade Ministry and top economists.
Chubais, the architect of the country's privatization program, managed former President Boris Yeltsin's re-election campaign in 1996 before becoming his chief of staff, one of the most powerful positions in Russian politics. Since April 1998, he has been CEO of UES, the state-controlled electricity and heat monopoly.
The government's medium-term economic plan - a document of more than 170 pages - is "great and good," Chubais said. "But neither I nor anyone knows what happens in real life. And when no one knows, everyone assumes the worst scenario and bases investment decisions on the worst scenario."
The document, drafted by the Economic Development and Trade Ministry, should include a section on the relationship between the state and business, Chubais said. If all the businessmen at Thursday's meeting were asked if they had been targeted by tax authorities, "a third of this room would raise their hands," he was quoted as saying.
"The question of confidence between business and the state is a performance index of all work, which - even with the best possible program - can lower results significantly," Chubais said.
When asked by Fradkov to be more precise as to who the business community would like to see more decisive action from, Chubais answered: "the government." The biggest hurdles for future economic growth, according to the government's development plan, include poor state management, demographics, a lack of overall competitiveness and too many monopolies.
"We have so many institutional traps that businesses have to make their way through a minefield without a mine detector," said council member Alexander Shokhin, a former minister and top debt negotiator who is now a leading member of RSPP, the nation's big business lobby.
The traps are "the distrust of authorities, elements of uncertainty over property rights and tax policy," Shokhin said, Reuters reported.
TITLE: IT Firms Hope for 'Silicon Valley'
PUBLISHER: Staff Writer
TEXT: Software companies are eager to take advantage of the expected increase in government support for the IT industry and jump-start the developement of a high-tech park in St. Petersburg.
The association of Russian software developing companies, Russoft, announced last week that it was in the process of acquiring a space for the construction of a techno-park that would group existing IT resources in one place.
On the recommendation of the city's town planning and architecture committee, Russoft picked out a 2-hectare land in the Primorsky district, next to Udelny park, one of the fastest growing city residential areas. The land will be allocated to Russoft under a 49-year leasing scheme and require about $25 million in investment.
"We expect Russoft member-companies to be the main investors in the project," said Valentin Makarov, the association's president, via e-mail.
The techno-park concept envisages the construction of a modern research and office facility that will have the infrastructure and telecommunication networks necessary for the operations of innovative IT development companies, he said.
"Investor companies will become partial owners of the facilities, which will allow them to minimize office costs and also let them use the space as a possible loan guarantee," Makarov said.
Besides Russian companies, Makarov said he expects some of the $25-million investment to come from foreign companies already operating in Russia and looking to expand.
Over the last year, a number of large foreign corporations such as Intel, Motorola, and SunMicroSytems, as well as large Russian companies Epam and Luxoft, have set up Research & Development centers in St. Petersburg.
The hi-tech park project follows on the heels of a recent address by President Putin that urged the government to propel the development of the hi-tech sector in the country.
Up to ten technology parks are planned as " fully fledged market projects with tax breaks and reduced customs duties on imported equipment for the companies [operating within them]," Putin said at a meeting dedicated to promoting IT and manufacturing in the Siberian city of Novosibirsk on Jan. 11.
A law outlining the provision of tax-breaks for technology zones is expected to appear before the Duma by March.
"[Right now], the most obvious way the authorities could help is by allocating a land plot for the park without any investment ties; that would lower the initial expenses," Makarov said.
Mikhail Tsigankov, director of the city's Luxoft office, echoed the sentiment, saying that while providing tax breaks may be an important step in developing the industry, the country had a larger role to play.
"[Russia] continues to face the need to improve its image abroad. There is still a demand for experienced marketing specialists who could promote the Russian IT sector in the West and aid the creation of a stronger 'Russian' brand," Tsigankov said in an e-mail interview.
And a St. Petersburg techno-park has the ability to work in that direction if it succeeds in the goal of creating a common platform for the technology power-houses already operating in the city, industry insiders say.
Cooperation with the St. Petersburg State University of Information Technology, Mechanics and Optics on Vasilyevsky Island and St. Petersburg State University at Peterhof, has already shown positive signs.
"Techno-parks have a real possibility to develop the city's unique intellectual potential, as well as help to commercialize and market new inventions," said Dmitry Lisenkov, investment manager at the Russian Technology Fund, a city-based venture investment company with foreign capital.
However, the park's concept should have a competitive and a well-founded base, said Keith Silverang, the CEO of Technopolis, a technology centers operator in Finland.
"[The project's success] depends on more than money. It depends on how strong the concept is, beyond just creating buildings and facility services," Silverang said via e-mail.
"Without strong innovation discoveries, networking and entrepreneurship supporting the system you can end up with a bunch of expensive, half-empty buildings. The soft services are the key in the long run," he said.
St. Petersburg's software outsourcing industry is the second largest in the country, claiming a 19 percent market share of the country's $600 million software export sales last year, according to Outsourcing-Russia.com industry website.
TITLE: IN BRIEF
TEXT: Electrolux Wants Plant
ST. PETERSBURG (SPT) - Electrolux, the Swedish consumer appliances manufacturer, is looking for a place to build the company's second plant in Russia after its first, a 9-million euro washing machines factory, will open in St. Petersburg this summer.
The city plant will have a production capacity of 300,000 washing machines per year, and manufacture machines under the Electrolux and Zanussi brands.
Hans Straberg, the president of Electrolux said the company is still to choose between a city and an Oblast location. "The company management has not yet made a decision in regards to the size and location of the new plant," said Straberg after attending meetings with both the Leningrad Oblast and the city governors late last week, Interfax reported.
InBev Offers $59M
MOSCOW (Bloomberg) - InBev, the world's second-biggest brewer, said it intends to offer $59.4 million to minority shareholders in Russian venture SUN Interbrew after completing a buyout of its partners.
TITLE: A WEEK IN THE MARKET
PUBLISHER: The St. Petersburg Times
TEXT: Monday: RTS Surges
The RTS Index nearly hit 600 as it grew 1.14 percent Monday to finish on 599.99 points. With trading volumes increasing as much as by 25 percent, as calculated by AK&M analytical agency, there were a number of strong showings by major oil and banking shares.
A surprising leader was Yukos. With a 6.06 percent rise to $0.7 a share, the volume of trading was the best on the RTS: $48,500. Propping up the surge were Norilsk Nickel shares (up 2.84 percent to $53.99) and those of UES and Sberbank (up 2.08 and 1.67 percent to $0.27 and $488 respectively.)
Market observers attributed the development to a sharp rise in crude prices following on fears of an energy shortage in North America due to the recent blizzard.
Meanwhile, Alfa Bank announced the issue of Eurobonds totaling $150 million through investment banks UBS and Merrill Lynch.
Last Week: Bear Rules
Lack of support among Western buyers on Russia’s stock market and the absence of fresh investment ideas prompted pro¸t-taking during the last week, Interfax reported. “The market is collapsing without any especially negative news ... nonresidents do not want to buy Russian stocks at current prices. Support, if there is any, is only coming from domestic speculators,” Alexander Pankov, trader at Antanta Capital, told AK&M last week.
“Investors are as yet nervous because of tax problems at a number of companies. There are also social tensions in the country over the cancellation of benefits, and this did not help the investment climate improve,” Vladimir Chkhikvadze, Uralsib specialist for working with international clients was quoted as saying by Interfax.
“There has been no infusion of money from the West”, the banker added.
Gazprom’s Investment Quota
Investors in Gazprom remained cautious despite the good news of a quota fall. The gas corporation will soon merge with petroleum major Rosneft, and the Kremlin plans a full liberalization of the monopoly stock, Alexei Miller, Gazprom board chair, said Wednesday last week.
Economic Development and Trade Minister German Gref proved his point last Thursday: Gazprom obtained his ministry’s approval to cede control stock to the government, and to abolish the current 20 percent limit of overseas participation in corporate capital.
Despite the worries of Western investors after the Yukos case, the decision on Gazprom in the long run could be a stimulus for the stock. Many investors view the Russian corporation as an attractive investment target.
German energy gas corporation Ruhrgas, for example, already holds 6.5 percent of Gazprom. Ruhrgas (owned by German energy giant E.ON) plans to increase its activities in Russia, Ruhrgas-CEO Burckhard Bergmann said to German newspapers last week, despite “certain irritations” by the Kremlin’s approach to Yukos.
TITLE: Banks Give Credit to the Market's Potential
PUBLISHER: Special to The St. Petersburg Times
TEXT: The consumer credit market hit figures of more than 3 trillion rubles ($107 billion) in 2004, showing dramatic growth across the consumer banking, car and home appliances, retail sales and insurance sectors.
Analysts predict further market expansion this year, but slower, and a lowering of interest rates.
CONSUMER LENDING BOOM
According to research by RosBusinessConsulting news analytical agency, the credit portfolio of Russian banks increased by over a third in 2004, while consumer lending programs more than doubled.
Last year consumer credit constituted 15 percent of all credit issued by banks, with Sberbank, Russky Standard, Home Credit and Finance Bank, and Raiffeisen leading the way.
Sergei Korotkov, Citibank's consumer business area director in St. Petersburg, said that consumer credit now accounted for 5 percent of Russia's Gross Domestic Product. In comparison, in U.S. the volume of credit exceeds that of the GDP; in India the figure stands at 20 percent.
"That means that the opportunities for consumer credit business in Russia are far from being exhausted," Korotkov said in an interview.
Reasons for this significant development include the growth of a solvent consumer base and the fact that banks have enough resources for such programs, Northwest Banking Association head Vladimir Dzhikovich said in an interview.
"There's been much talk of banks needing to pay more attention to individuals and developing consumer products. Such projects are usually very time-consuming and it was difficult for many financial institutions to reorganize their business and their attitudes," Dzhikovich said.
"However, now we can say that they've done it and are doing it massively. Consumer lending is only successful if it's on a massive scale," he said.
Banks turned their interest to individuals once business customers were divided among the major players, Progress-Neva's insurance spokesperson Andrei Goryainov said.
Artyom Zhavoronkov of Salans law firm added: "The consumer lending market is developing dramatically. With fierce competition between the credit programs, the main market players are forced to offer better deals."
Furthermore, the sector has not been tainted by any significant cases of non-repayment, Zhavoronkov said.
"Sometimes consumer credit contracts are made very quickly and not exactly properly or safely from the legal point of view. It could result in a borrower being taken to court in the case of non-repayment - and you know how long that can take in Russia. Still, I am amazed to see no examples of frauds or misuses from the borrowers' side," he said.
Growth in consumer lending programs has not gone unnoticed by insurance companies, which usually act as the third party in the bank-retail-insurance company lending scheme.
Insurance premiums on consumer lending schemes have increased from $476,000 in 2003 to $1,302,000 in 2004, Goryainov said.
THE CHOICES
At the moment consumer lending falls into three main sectors in St. Petersburg. The first, auto credit, is saturated and divided among the banks with competition high, Dzhikovich said.
Next comes consumer credit for purchase of home appliances.
"This sector is divided into higher purchase, offered by retail chains at zero percent interest with stage repayments in order to increase the turnover of products and bank lending programs," Dzhikovich said.
"Naturally, banks must charge an interest rate. Banks lend money to themselves and have to pay the interest rate on that loan. That's why the average interest rate on a credit rating program has to be at least higher than inflation and the Central Bank interest rate," Dzhikovich said.
Some analysts, however, already notice credit interest rates decreasing. Zhavoronkov points out that if one or two years ago the average interest rate stood at 15-16 percent. It's now nine percent in rubles.
The third sector is credits for education and MBA programs. Banque Societe Generale Vostok's general director in St. Petersburg Yelena Shevelyova told The St. Petersburg Times that the bank pays special attention to developing credit programs for this sector as part of their "Youth banking" program.
Many banks also create their own consumer lending programs. For example, as well as auto credit, Raiffeisen gives credits for purchases of motorcycles, Banque Societe General Vostok for apartment renovation (as a combined mortgage and consumer credit), and many banks offer non item-specific credit.
Often the clients are not only private individuals. Many small and medium-sized businesses obtain credit for their companies by means of consumer credits, with the firm's owner or director as borrower.
Credit for small and medium-sized businesses is not yet developed in Russia, and such companies can't provide adequate guarantees for the business, Dzhikovich explained. Obtaining credit as a private individual facilitates the process.
OUTLOOK
Most market experts view the consumer credit sector as the dominant growth area in banking, but the pace of development in the near future leaves opinions divided.
A lot depends on whether, as expected, more foreign players will enter the domestic market and new retail chains adopt credit schemes for their customers.
It is feared that the Federal Anti-Monopoly Services' recent demands on banks to show real interest rates and their breakdown (see "FAMS: Tell Customers the Truth", this page) may scare off potential borrowers.
However, an increase in competition will ensure lower rates this year, Zhavoronkov said.
TITLE: IN BRIEF
TEXT: World Standard Cards
ST. PETERSBURG (SPT) - Russky Standard bank will replace all its domestic credit cards with the internationally accepted MasterCard Electronic system from next year, Kommersant reported last week.
All of the bank's credit cards, currently numbering 1.8 million, will transfer to the international system in what promises to be the largest credit card project in Russia, the bank's senior vice-president Georgy Gorshkov said.
"MasterCard Electronic is a basic level credit card that is specially tailored to banks practicing consumer credit," Andrei Korolyov said, head of MasterCard in Russia.
The move, by promising to quadruple the number of MasterCards in Russia (which stood at 7 million cards in September 2004), would provide support for Russky Standard's expansion in the regions, Kommersant reported.
A similar contract between Home Credit and Finance bank and the Maestro card service was concluded in December last year.
TITLE: Behind the Smile That Greets Investors
PUBLISHER: Staff Writer
TEXT: Alexander Prokhorenko is one of the first men foreign investors meet when they come to start their business in St. Petersburg.
A former secretary of Leningrad State University's young communist organization, a member of staff at the Soviet Union's Culture Center in Finland, responsible for the image of the U.S.S.R. abroad, and then a Legislative Assembly deputy, Prokhorenko is well suited to this role. Now head of City Hall committee for external affairs, Prokhorenko, however, hardly fits the stereotype of an average, "boring chinovnik" (civil servant).
Jokingly referred to as a Russian ex-spy in Finland for his working experience in Russia's northern neighbor and ability to speak good Finnish, Prokhorenko says he knows his job well.
"At a certain moment, the Finnish language helped me move to work in Finland," Prokhorenko says. "In 1980, five years after graduation, I was invited to work for the Union of Communities for Friendship and Culture Connections with Foreign Countries. I signed a contract with this splendid organization to go to Helsinki as director of the House of Soviet Science and Culture."
While fending questions on alleged spying connections, Prokhorenko, who also worked as second secretary at the Russian embassy in Finland in the 1980s, says he "never had a direct link to the special services."
"It was sort of an international propaganda center with an interesting system. Now there's plenty of talk about creating an image for Russia, but the idea was invented long ago," Prokhorenko says. "The Friendship Community had representative offices in 90 countries all over the world. The centers were meant to promote positive perceptions of the Soviet Union in all spheres: politics, economics, internal life and cultural development.
"There were some obnoxious deviations - pure propaganda of the kind displayed by [then Soviet leader] Leonid Brezhnev's peace initiatives. But in many cases the Community played a very positive role providing constant contact for citizens and organizations from the Soviet Union with citizens of foreign countries," Prokhorenko says.
As one example of the center's success, Prokhorenko mentioned its Russian language courses that were very popular in Finland, with up to 1,000 people studying annually.
"Nobody forced them to go there. It was all being done purely from choice."
The Community's centers were quite an expensive program for the Soviet Union, Prokhorernko explains, because the state had to finance thousands of staff working across the world and organize many concerts and cultural events.
"But it was worth it," he says.
Prokhorenko admits that working for City Hall means that he is basically doing the same job as the one he started on in Helsinki more than 20 years ago.
"Now there is more independence," he says. "[In Helsinki] the work was purely cultural and political, but here, besides those aspects, there is the economics part. Here I am manager, coordinating a center that provides external business contacts, trying to formulate export policy.
"We also work on attracting investment and overseeing particular projects."
Prokhorenko mentions the latest City Hall initiative to re-install contacts lost after the collapse of the Soviet Union with counties that used to be supplied with industrial and energy equipment produced in St. Petersburg. Among countries to have re-established ties are Tajikistan, Iran and India who are in the process of signing business deals after negotiations with City Hall.
As for foreign businesses coming to St. Petersburg, the external committee works as a kind of a filter, Prokhorenko says.
"I interpret the role of the committee as providing a place for a first meeting," he says. "Or it might be some sort of an initial filter. The place for a first meeting if very important in relation to investment matters. Business behavior is determined not only on the grounds of direct pragmatic interest; the emotional and psychological aspects also play their part."
"If you like a girl, but on a first date her breath smells of a hangover and she swears, you probably wouldn't contact her after that," Prokhorenko says.
Prokhorenko lists several cases when foreign investors were sent packing after City Hall found their intentions were not serious. As an example, he gives the case of a Hungarian company that came to the city proposing to supply the Ford factory with automobile spare parts. As it turned out, the firm did not have the slightest idea of how to do it.
Former colleagues at the Legislative Assembly remember Prokhorenko as a great teller of jokes.
"He's a self-controlled, intelligent and clever person, and knows a huge number of jokes. To be honest, I think I don't know another person that knows so many jokes," says Mikhail Amosov, head of the Yabloko faction at the Legislative Assembly.
"We've often been in opposite political positions because he was always on the side of the executive and I often criticized it. But, I respect that he has a great understanding of international relations and is a very professional official," Amosov says.
"He's got a great sense of humor despite the fact that he works as an official and worked for some time abroad," says Victor Yevtukhov, the Legislative Assembly lawmaker of the United Russia faction. "You have to remember that during those times, people did not get to work abroad just like that.
"He's highly educated, behaves correctly and has a broad knowledge of things. I don't know his background, but according to his behavior he's a real St. Petersburger, and in every situation a conversation with him is always pleasant."
TITLE: Finns Advised on Bribery in Russia
PUBLISHER: Combined Reports
TEXT: HELSINKI - Finnish authorities criticized a leading trade body on Friday for publishing a book giving advice on bribery for Finns doing business in Russia.
The book, titled "Russian Customs for Finns," gives examples of what kind of bribes can be given and how, seeking to aid businesses from a country known for its transparency. "If you have to give a bribe, it has to be done discreetly, definitely without external witnesses, or rather by using a Russian frontman," the book, published by the Finnish-Russian Chamber of Commerce, quoted a Finnish businessman as saying.
The Chamber used a Finnish government grant to finance the publication the instruction book deeming it a necessary tabletop accessory for Finnish businessmen. Finland has been acknowledged as the world's least corrupt country in terms of business transactions by the Transparency Internatioanl organization.
Although the book was actually published two years ago, it provoked a scandal last Friday, when the authoritative Finnish daily Helsingin Sanoman cited a chapter from a book, in which Finnish businessmen discussed their experiences in bribing Russian officials.
"Of course you have to talk about the operating environment, but not like that," said Henrik Raiha, a senior official at the Trade and Industry Ministry, which provides some 20 percent of the organization's annual financing. "Now the reader gets the picture that you can't cope in Russia without bribing," he said.
A Chamber of Commerce spokesman defended the book, saying it "is a description about how real life is in Russia."
(Reuters, Mosnews, SPT)
TITLE: Taxing Questions:
Changes for Business in 2005
TEXT: Two trends dominated Russian tax practice in 2004. President Vladimir Putin's goal to double the gross domestic product intensified Federal Tax Service efforts to raise collections by any means available. Meanwhile, Russian legislative authorities continued their policy of liberalization of the existing tax system to stimulate economic growth.
LIBERAL VALUES
In terms of liberalization, the new Law No. 173-FZ "On currency regulation and currency control," effective as of June 18 2004, revoked previous Central Bank requirement for individual permissions, thus excluding an excessive interference from currency control authorities in the regulation of cross-border trade transactions.
Instead, mandatory cash reservation and special bank accounts have been introduced for certain transactions. Some new requirements have led to additional costs: in opening passports transactions for service contracts; in obligation to pay for shares of Russian joint stock companies with Russian rubles only; there's a 3 percent reservation for inbound short-term loans and etc. Nevertheless, foreign currency transactions were generally simplified.
The new law has helped Russian domestic companies to start making legitimate outbound investments, dividend planning and also legalized many holding or reinvested capital structures.
CORPORATE TAXES
There were changes in corporate profits tax distribution. While the general rate remained at 24 percent, the municipal 2 percent rate was cancelled. The federal and regional rates have now been set at 6.5 percent and 17.5 percent respectively. At that, regional tax authorities retained the right to grant profits tax concessions not exceeding 4 percent allocable to their budgets.
The new corporate property tax, which came into force in 2004, has significantly shortened the list of taxable property. Stock, intangibles and capital expenditures were excluded, with only fixed assets being left. The maximum tax rate was slightly increased from 2 percent to 2.2 percent.
At the end of last year, St. Petersburg legislative authorities enforced the right to establish lower tax rates for certain qualifying activities and investments by adopting Law No. 620-88, effective as of Jan. 1 2005. It is clear that these measures of the regional authorities will expedite return on investment to local and foreign companies.
POSITIVE CHANGES
As of 2005 the 5 percent advertising tax has been repealed and the upper unified social tax rate decreased from 35.6 percent to 26 percent. The latter change was, however, connected with the increase of the personal income tax rate payable on dividends.
Dividends are now taxed at 9 percent for all, instead of 6 percent as was the case for individuals in 2004. This change was aimed in particular at companies that paid salaries to employees in the form of dividends to avoid the social tax.
As another bonus for 2005, purchases of land have been made exempt from VAT. Furthermore, tax authorities confirmed that trademark royalty payments by a Russian entity to a foreign company are also free from VAT.
ADVERSE DEVELOPMENTS
In the 2004 Resolution No. 169-O the Constitutional Court has decided that a taxpayer is only entitled to Value Added Tax deductions if he has borne "real expenses": paid for goods with own funds. Payments with borrowed funds did not satisfy the requirements until the loan has been actually repaid by the taxpayer.
The Resolution was a shock for business community since the most significant deals are financed with borrowed funds. The issue was somehow resolved by Resolution No. 324-O aimed to interpret 169-O. The court explained that the taxpayer was not entitled to VAT deductions only if there were solid grounds to consider the loan unlikely to be repaid (that the taxpayer was acting in bad faith.)
The new resolution 324-O had, however, raised another issue. The court mentioned that the right to deduct VAT also depended on payments of VAT by the taxpayer's supplier. This position has not had any further development as yet.
TAX WITHIN THE RULES
Administering tax compliance remains to be one of the most critical problems for taxpayers. The tax burden worsened after the Constitutional Court adopted Resolution No. 14-P concerning limitation of on-site tax audit period.
The Court found that the general two-month term for on-site tax audits (set forth in Article 89 of the Tax Code) applies only to the time factually spent by tax inspectors at the taxpayer's premises. Considering that it is practically impossible to limit or otherwise control the duration of tax authorities' presence on the premises, the resolution unbars the way for abuse of powers. Furthermore, it narrows the possibility of challenging tax audit results.
A WORD ON YUKOS
With the famous Yukos case the arbitration court had for the first time applied the "substance over form" concept in Russia directly to company tax affairs. The court ruled that implementation of even legally admissible tax planning mechanisms was not permitted if the sole purpose behind them was an easing of the tax burden.
One major fallout from the Yukos case has also been an issuing of guidelines by the Federal Tax Service to local tax authorities for investigation of tax evasions, describing schemes commonly used by companies in different industries for tax minimization purposes.
Thus in the above-mentioned first trend of simplification and liberalization of tax practices is being totally spoiled by a crackdown on the application of tax legislation by the courts and the authorities. The full consequences remain to be seen.
Ruslan Vasutin is a senior manager and Georgy Pchelintsev an associate at Ernst & Young in St. Petersburg.
TITLE: The Chinese Question
TEXT: The Asian element has always had an important place in Russia, which lost a significant amount of its European territory in the 20th century and moved toward the East. As a result, the objective significance of China, as well as Siberia and the Far East, increased dramatically. Nonetheless, Russian politicians, along with average Russians, pay little attention to the growing giant of China. Though at least half of all Russians live in Asia, Russians have forged a myth of themselves as a European country and have fallen victim to their own myth.
Many experts today are debating whether the Chinese example applies to Russia. The results of China's rapid growth are so obvious that only a small group of pro-Western fanatics has failed to notice them. The Chinese experience is not important as a source of concrete measures that Russia should or should not adopt. It is rather a strikingly clear demonstration that a realistic and pragmatic economic policy, implemented firmly and consistently but not fanatically, is capable of turning a backward and hungry country into a powerful, rapidly developing giant in less than one generation. The main result of China's economic development is that the majority of Chinese - and therefore a significant portion of the world's population - now live a lot better than they did 20 years ago. How many Russians would say the same?
China's dictatorial communist regime created this economic upturn. The Russian attempt to create a model democracy led to economic collapse. This is one of life's harsh truths, one close to Russian communists' hearts, but a paradox for so-called democrats who are accustomed to thinking that communism leads to economic collapse, and democracy to prosperity. China's dictatorship is far milder than it was prior to the reforms. Democratic Russia, in contrast - where tens of thousands have perished in Chechnya, where tanks shot up the parliament, where police use torture and where those awaiting trial are infected with tuberculosis - scores far more points for cruelty than today's communist China.
Naturally, the Chinese example cannot be used to justify phasing out democracy in Russia on the grounds that authoritarianism promotes economic development, as some close to the Russian authorities like to argue.
The fate of reform in China, plagued with numerous problems, remains unclear. It is obvious that a democratic government is more conducive to economic growth in today's world, where the majority of investors live in democratic countries. But this government must be stable, based on the rule of law and able to create a favorable climate for investment. The country must have regular elections backed by an independent judiciary and should wage decisive battle against corruption. It must make significant investments in education. Russia at present is moving in precisely the opposite direction, which means that no one has learned from or properly understood China's experience.
Russia is objectively becoming more Asian, both in its interests and in its problems. However, no one seems willing to acknowledge this vital fact. Schoolchildren study European history and culture and learn European languages. Disregarding English, which has become an important international language, there are more schools teaching European languages like French and German in Moscow - and in the Far East, as well, I would argue - than those offering Chinese, even though China is one of Russia's most important neighbors.
Furthermore, Russians have a peculiar attitude toward China. Paradoxically, surveys reveal that many in the Far East would rather work with Americans, Japanese or even Germans than with their Chinese counterparts.
At the same time, the fear of China is particularly strong in the Far East. People talk of a flood of Chinese immigrants, citing completely improbable statistics in the millions. The Chinese have become whipping boys and are held responsible by clumsy and corrupt local officials for all the woes their administrations have wrought. This attitude has spread to Moscow, as reactions to the sale of Slavneft in Dec. 2002 revealed.
A strong and prosperous China is a problem for Russia. Yet this problem is Russia's problem, not China's. China is only guilty of maintaining high rates of economic growth for the last 20 years and pursuing its national interests. The question confronting Russia today is whether it will climb out of the hole the communists and pseudo-liberals dug and whether it will become free and strong both economically and politically. No one will be able to threaten a successful Russia, but if it lags behind the rest of the world, it will fall apart without any outside help.
The development of Russia's Asian regions, or two-thirds of its total territory, will not be possible unless there is a revolution in Russia's attitude toward Asia and unless we understand that economic and political partners in the East are of the same importance as those in the West.
This revolution will be impossible without a sweeping program to study the languages, history and culture of Asian countries at all levels, starting with primary and secondary schools. We will have to reform the entire Russian educational system to include Asian languages, history and culture. They should be studied just as widely in Russia as European languages, history and culture are. Such changes would not contradict the policy of nurturing closer ties to the West. They would simply mean that we have finally recognized Russia's current geopolitical realities and practical needs.
Alexander Lukin is director of the Center for East Asian Studies at the Moscow State Institute for International Relations, or MGIMO. He contributed this comment to The St. Petersburg Times.
TITLE: Building Cooperation, Preventing Proliferation
TEXT: In a recent confidential report that was leaked to the press, the International Atomic Energy Agency said that while Iran was guilty of breaching certain international safeguards, almost two years of inspections had uncovered no proof of any illicit weapons programs. Then, on Jan. 18, a day after U.S. President George W. Bush refused to rule out military action against Iran if it continued to attempt to build nuclear weapons, a number of Iranian officials declared that they would not be intimidated by U.S. threats.
These two events are two sides of the same coin. Russia is intimately involved in this important issue due to its agreement to share civilian nuclear technology with Tehran signed in August 1992, an agreement which has long profited both countries.
So what's wrong with an Iranian nuclear program? Why is the international community, especially the United States, so concerned? Why is the Iranian nuclear program so important to Russia, considering how intense U.S. pressure on Moscow remained in the 1990s and how strongly the United States demanded Russia end its nuclear cooperation with Iran? Will Iran ignore international nuclear safeguards and agreements and become the first Islamic nuclear power since Pakistan tested the bomb in May 1998? Will the international community succeed in persuading Tehran to abandon its presumed nuclear weapons drive and focus solely on civilian atomic energy?
Even top Iranian diplomats cannot give a definite answer to these questions. Last November, a senior Iranian diplomat, Ali Saltahni, spoke at the Carnegie Moscow Center and addressed why Iran needs a closed nuclear fuel cycle and uranium enrichment facilities. He pointed to Iran's demand for cheap energy and emphasized its right to construct nuclear power stations and manufacture its own fuel. In the heated discussion that ensued, Saltahni tried to calm his audience and stated that "very soon" Iran would sign a special agreement with Russia to return spent nuclear fuel from Bushehr's nuclear reactors, thus confirming his country's commitment to civilian nuclear energy.
Yet one small but very important problem with Tehran's nuclear program remains. The United States is convinced that Iran has an advanced nuclear military program and that Tehran has decided to build nuclear weapons. A Nov. 24 article in The New York Times referred to a CIA report that stated that the international network of nuclear black market dealers headed by the so-called father of the Pakistani bomb, Abdul Qadeer Khan, provided "significant assistance" to Iran, including "advanced" and "efficient" nuclear warhead designs. Thus, Washington believes that it is more important to stop Tehran than to negotiate.
There is some logic behind the United States' conclusion that Iran's nuclear program has hidden military goals. Iran says that it is building expensive nuclear energy facilities and developing a closed nuclear fuel cycle to satisfy its future demands for electricity. But uranium reserves in the country, as many in the West have pointed out, are scarce and less than 1 percent of its huge oil and gas reserves. Iran is home to the second-largest reserves of natural gas in the world. During oil production, Iran burns enough of the associated gas to produce what Western experts claim is the equivalent of four nuclear power plants the size of Bushehr. In this light, Tehran's nuclear energy program seems to be a cover for developing the bomb.
Thus, even with the long history of Russian-Iranian nuclear dialogue, there are some troubling questions to be asked of Russia's strategic energy partner. For the last several years, Iran has misinformed Moscow about the true size of its own nuclear program on several occasions. Moscow, as Iran's only partner, longs for more openness and frank information from Tehran. The question remains how Russian-Iranian relations in the nuclear sphere should proceed, as the United States and other Western partners regard Russian nuclear cooperation with Iran as a direct contribution to the development of weapons of mass destruction. Russia does not believe this to be true and does not see any grounds for stopping construction at Bushehr. Moreover, nuclear cooperation with Iran is very profitable for Moscow, in that it helps keep Russia's atomic power industry alive and brings in millions of dollars. Thus, Russia needs to separate the issue of possible nuclear weapons development from the question of the Bushehr nuclear power plant and communicate the crucial difference between the two to the world community.
Officials believe that Russia has every right to help Iran develop civilian nuclear energy and to encourage fruitful cooperation with its strategic energy partner. But Moscow should avoid the mistakes of the 1990s in its nuclear relations with Iran. And it should be strict and to the point with Iran in order to prevent a rift between Moscow and Washington over the Iranian nuclear program.
But while attempting to keep a reserved and careful attitude toward nuclear cooperation with Iran, we should not go to the other extreme, either. Today, the IAEA has all the necessary tools that will allow it to conduct a comprehensive investigation of the Iranian nuclear program, as well as engage in further monitoring. Russia should cooperate with the IAEA but should not push this specialized United Nations agency to make political statements that do not coincide with the conclusions of its nuclear inspectors. Moreover, now may not be the best time for the agency's report to be handed over to the Security Council.
In addition to working with international nuclear inspectors, Russia should actively cooperate with France, Germany, Britain and other European countries with longstanding traditions of dialogue with Iran. Finally, we must avoid putting extra pressure on Iran and be very careful not to disclose Israel's nuclear arsenal. Tehran might then rapidly abandon international treaties. This would undermine stability in the region and perhaps the rest of the world as well. This is a critical time for Iran to be held within the community of non-nuclear states to avoid a military solution to the Iranian nuclear problem. It is in Russia's interest to preempt a strike by either the United States or Israel, as well as to prevent the formation of an Islamic Nuclear Belt on its southern flank.
Vladimir Sotnikov is a research associate at the Institute of Oriental Studies, Russian Academy of Sciences, and an independent expert on nuclear nonproliferation in South Asia and the Middle East. He contributed this comment to The St. Petersburg Times.
TITLE: Response to Protests Bodes Ill for Liberal Reforms
TEXT: The way that the authorities at all levels are reacting to pensioners' protests regarding the replacement of in-kind benefits with cash shows that the present regime is unlikely to carry out fully fledged liberal reforms.
Under the pressure of the protesters, the authorities have gone away from the original intention of deceiving citizens by simply removing their benefits under the pretext of swapping them for money. The benefits have been restored, but the baby has been thrown out with the bathwater - the liberal thinking behind the reform has been lost.
Instead of raising the sum paid in compensation for the lost benefits so that beneficiaries could pay for transport fares at market prices - that is the cost of a monthly pass - the authorities have decided to issue a special, discounted pass. If it was not bad enough that the decision meant a heap of problems with issuing and distributing the cards to pensioners - more likely than not to cause predictable confusion and misuse, there will also be purely economic problems. How shall the difference between the discounted pass, costing 230 rubles ($8.17), and the full priced one (600 rubles) be dealt with?
Market forces dictate that transport companies should receive enough to cover the full cost of every ride. This means that beneficiaries, who pay only 230 rubles, will have to have the remaining 370 rubles covered by payments from the administration to the transport companies, and that will not allow for any savings for the authorities. More likely than not, the city will try to deceive the companies now that it has not worked to deceive the pensioners. And it should be said that such behavior by the authorities is not rare: even under the old scheme there was many such tricks practiced.
For instance, power utility Lenenergo provided discounted electricity for those with state benefits at its own cost. Although that is nonsense - a private company should not have to support social welfare - that's a matter for the administration, that's what they are elected for. Passazhiravtotrans, the holding company that manages public transportation in St. Petersburg, has already been regularly underpaid because the city budget did not cover the discounted travel of beneficiaries.
Now, however, City Hall is reforming the transport sector and any day now will conduct a tender for minibus routes with the aim of attracting private transport firms. The same Passazhiravtotrans has been told to operate according to market forces by the authorities, which will not cover all its expenses. The authorities have promised full payments at market prices for every ride, but now that the city government is again getting involved in financing beneficiaries, the reform has lost its purpose. Everything is back to where it was even though there was a lot of chatter about liberal reforms.
Evidence that this is the way things will go is a second special feature of the reaction of the authorities to the protests. It is obvious that what worried the government more than anything was not the fairness of their policies, but public order. The grouping that is playing the main role here is not the liberal reformers, but the law enforcement and authoritarian-leaning members of the government.
Simultaneously with the traditional soothing promises issued to unhappy pensioners, the authorities began to energetically seek out and repress the instigators of the rebellion. Although it was clear that the protests reflected objective concerns of pensioners, the most active of whom work and need transport to get to their workplaces, the police and special forces adopted the old Soviet approach of looking for plots and hunting down the ringleaders.
If only they would show the same determination when hunting down the instigators and organizers of terrorist attacks. But it is clear that it is much easier to catch people with dark hair than bandits, as human rights campaigner Sergei Kovalyov rightly commented. To find, punish, arrest and beat up scapegoats is completely in keeping with the style of the Soviet KGB. These are the same methods that were used in dealing with Yukos. These guys handle all matters the same way.
At the same time the liberal attitude has not been eliminated either. In this way, we are caught in two minds, collating two different systems of logic - that of liberalism and that of the siloviki.
Some pensioners, for instance, favor the autocratic logic. Others favor a liberal approach. There are even people who believe that the two can co-exist. That's the way Finance Minister Alexei Kudrin, who has always been considered a liberal, exploited the old myth of the Bolshevik's secret police: it is people who want disorder that are behind the (now pensioners') protests.
However, people do have to choose between the two systems. The gods of autocracy have no need to exchange in-kind benefits for cash - it is not their bread and butter, which is to restrict citizens' rights in return for stability and predictability. For many people that's all they want. But when the paternalistic equilibrium is lost, it is ordinary people, and certainly not the activists of Yabloko and the National Bolshevik Party, who stimulate disorder. This was what brought old people on to the streets.
Liberal transformations are painful, but they offer fresh approaches, constant growth, many private success stories, and optimism in society stemming from dynamism.
The peaceful coexistence of these two systems contains many contradictions and they cannot last forever. It is quite possible that even this year a choice will be made in favor or one or the other. And all the signs are that it will not be the liberals who win. The handling of the cash for benefits reform is a bad portent. It is quite likely that the foundering of transport reform will become another bad sign. And the Leningrad Oblast government has already said that it is in no hurry to reform the communal housing services sector.
Vladimir Gryaznevich is a political analyst with Expert Severo-Zapad magazine. His comment was first broadcast on Ekho Moskvy in St. Petersburg on Friday.
TITLE: Soviet Veteran Returns To Auschwitz 60 Years Later
PUBLISHER: The Associated Press
TEXT: MOSCOW - On Jan. 27, 1945, Yakov Vinnichenko walked through the gates of Auschwitz into a netherworld of ghostly, emaciated women huddled together in dark barracks to prop one another up. "Some tried to kiss us, but it was uncomfortable - you didn't want to get infected," the one-time Soviet infantryman recalls.
Vinnichenko was among the first outsiders to glimpse the horror of the concentration camp in southern Poland as the troops of the Soviet 322nd infantry division cut the surrounding barbed wire and swept through.
This week, he and a handful of comrades-in-arms return to Auschwitz to join Vice President Dick Cheney, Russian President Vladimir Putin and other world leaders in honoring the 60th anniversary of the camp's liberation. It will be his second trip to Auschwitz since the liberation; he traveled there in 2000 to mark the 55th anniversary.
By the time Vinnichenko's unit arrived, most of the prisoners had been evacuated by the Nazis on death marches as they fled toward Germany. About 7,000 were left - "those who couldn't move," as Vinnichenko put it.
He said his regiment was rushing to the next battle and spent only a few hours in the camp, but he did duck into one barracks.
"There was filth, and blood. It was a women's barracks," he said, recalling the sight of hard, three-level bunks covered with straw mattresses.
"Sixty years have passed, you forget a lot - and for 30 years, no one showed interest or cared to ask," he said.
Under communist rule, the Soviet narrative of World War II avoided mention of the Holocaust - a theme that could raise questions about the state's demonizing of Jews at home and its hostile relations with Israel. Only in the years since the Soviet Union broke up has the destruction of European Jewry won widespread acknowledgment in Russia.
Vinnichenko had seen persecution and cruelty in his own prewar life: In 1933, when he was 7, his father starved to death in the state-induced famine in his native Ukraine that killed up to 10 million people. Three of his uncles were sent to Soviet labor camps; his mother fled to a village near Moscow, leaving him with his grandparents.
He joined the Soviet Army in 1941, at age 15, after the Germans invaded his homeland; there was no other choice.
"Whether you wanted to go or not, they picked you up. No one asked. It was the same on the front; you don't want to fight, you're shot dead by your own men," he said. "The commander's behind, you're in front - it's only in movies that the commander is in front."
TITLE: No Shift in U.S. Foreign Policy, Bush Sr. Says
PUBLISHER: The Associated Press
TEXT: WASHINGTON - President Bush's inaugural address, with its emphasis on spreading democracy and eliminating tyranny throughout the world, was not meant to signal a new direction in US. foreign policy nor to portray America as arrogant, his father said Saturday.
"People want to read a lot into it - that this means new aggression or newly assertive military forces," former President Bush told reporters during an informal visit to the White House briefing room. "That's not what that speech is about. It's about freedom."
In Thursday's speech, Bush said: "We will persistently clarify the choice before every ruler and every nation: The moral choice between oppression, which is always wrong, and freedom, which is eternally right."
That raised the question whether Bush intended to apply new standards to allies or partners who keep democracy at arm's length and have poor records on human rights. Did that mean he would pursue democracy in places like China? Would he try to reverse moves toward reinstating authoritarian rule in Russia? How far will he go to challenge the nuclear ambitions of North Korea and Iran?
"It doesn't mean instant change in every country - that's not what he intended," former President Bush said about his son's second inaugural address.
The president, who during the 2000 election campaign disparaged "nation building" by President Clinton's administration, pledged in his speech Thursday to advance liberty in nations whose people were deemed repressed.
The United States has maintained strong ties, however, with governments whose policies it criticizes. For example, the State Department says some allies in the war against terror - Egypt, Saudi Arabia, Pakistan, Uzbekistan - engage in political repression to varying degrees.
"As I stated in my inaugural address, our security at home increasingly depends on the success of liberty abroad," the president said in his weekly radio address Saturday. "So we will continue to promote freedom, hope and democracy in the broader Middle East - and by doing so, defeat the despair, hopelessness and resentments that feed terror.
Some Asian nations have expressed suspicion that the inaugural speech pointed to a more aggressive foreign policy that could worsen global tensions. In recent days, North Korea's communist government, through its official news agency, denounced the United States as a "wrecker of democracy" that North Korea said "ruthlessly infringes upon the sovereignty of other countries."
The president has been accused of having a go-it-alone approach to foreign policy, but his father said the speech was not meant to signal US self-importance or aggressiveness.
"They certainly ought to not read into it any arrogance on the part of the United States," the former president said.
TITLE: Germany Arrests Al-Qaida Suspects
PUBLISHER: The Associated Press
TEXT: KARLSRUHE, Germany - Two suspected al-Qaida members accused of planning a suicide attack in Iraq were being brought before a judge Monday to determine whether there is enough evidence to hold them while federal prosecutors investigate, officials said.
Ibrahim Mohamed K., a 29-year-old Mainz resident from Iraq and Yasser Abu S., a 31-year-old Palestinian who was living in Bonn, were arrested Sunday on suspicion of membership in a terrorist organization.
The Iraqi, alleged to have trained at Osama bin Laden's camps in Afgha-nistan and have fought American forces there, is accused of recruiting suicide attackers in Germany and providing logistical help to al-Qaida.
He also is believed to have tried to obtain 48 grams of uranium in Luxembourg, though authorities said they had no further information about that incident.
The Palestinian, who was born in Libya and has an Egyptian passport, is believed to have planned to fake his death for insurance money and then carry out a suicide attack in Iraq, according to chief federal prosecutor Kay Nehm.
TITLE: IN BRIEF
TEXT: Man Found in Cave
TOULOUSE, France (AFP) - A 48 year-old Frenchman who went missing last month has been found emaciated but alive in an underground cave system where he spent 35 days in pitch blackness eating nothing but wood and clay.
Jean-Luc Josuat-Verges, a care-worker from Vic-en-Bigorre in the foothills of the Pyrenees, left home on Dec. 18 saying he was depressed and wanted to be alone for a time, according the Depeche du Midi newspaper which broke the story.
On Thursday a group of teenagers taking advantage of a teachers' strike went to explore the mushroom farm - which is off-limits to the public - and saw Josuat-Verges' vehicle. They alerted police, who sent in a search party and found him the next day only 200 meters from the entrance.
Lost in Translation
OSLO, Norway (AP) - President Bush's "Hook 'em, 'horns" salute got lost in translation in Norway, where shocked people interpreted his hand gesture during his inauguration as a salute to Satan.
That's what it means in the Nordics when you throw up the right hand with the index and pinky fingers raised, a gesture popular among heavy metal groups and their fans in the region.
For Texans, the gesture is a sign of love for the University of Texas Longhorns, whose fans are known to shout out "Hook 'em, 'horns!" at sporting events.
Snowboarders Killed
VIENNA, Austria (AP) - A missing American snowboarder was declared dead Sunday, raising the death toll to at least four in weekend avalanches that claimed the lives of daredevils seeking the dangerous thrill of skiing off-trail in virgin alpine snow.
The snow slide that killed the snowboarder also killed two Canadians aged 40 and 57 at the popular resort of St. Anton.
TITLE: Injured Hip May Halt Hewitt After Win
PUBLISHER: The Associated Press
TEXT: MELBOURNE, Australia - Lleyton Hewitt had a sore right hip and appeared on his way out of the Australian Open.
The No. 3 seed needed treatment after losing the third set to unseeded Rafael Nadal and seemed in deep trouble. But he fed off the home crowd's energy and advanced to the quarterfinals Monday with a 7-5 3-6 1-6 7-6 (3) 6-2 victory.
Trying to finish points quickly to limit his movement, Hewitt committed five consecutive errors in the fourth set after going ahead 0-40 while holding a 3-2 lead.
He then proved that he deserved his reputation as a battler. Hewitt got to a tiebreaker and won it, punctuating the points with his trademark fist pumps and shouts of "Come on!"
That got the fans roaring and left the 18-year-old Nadal shaking his head.
Being pushed to five sets seemed to take some of the steam out of Nadal, touted as a rising star but hampered last year by a stress fracture in his right ankle that kept him out for three months. He came back to beat Andy Roddick and help Spain clinch a win over the United States in last month's Davis Cup final.
Nadal asked for a massage on his left thigh after Hewitt broke twice and ran off a 3-0 lead in the deciding fifth set. Hewitt stretched while laying on a towel.
While serving for the match at 5-2, Hewitt had a double-fault and two unforced errors to give Nadal a pair of break points. He fought back to deuce, double-faulted on his first match point and squandered a second, then finished with an ace and a backhand from Nadal that sailed just long after a lengthy rally.
Hewitt dropped to his knees in celebration as the crowd roared.
"This crowd is second to none," said Hewitt, who also rallied for Davis Cup victories on the same court. "I was hurting a little bit in the third set. You try to get all of the negative thoughts out of your mind."
Hewitt added that the injury, first sustained at a warmup tournament in Sydney, should not affect him in his next match, when he will face the winner of an all Argentinian match between No. 6 Guillermo Coria and No. 9 David Nalbandian.
After three consecutive lefties, Roddick struggled with the serve of right-handed German Philipp Kohlschreiber. But the second-seeded American smacked 15 aces and overcame a second-set letdown to reach the quarterfinals with a 6-3 7-6 (8) 6-1 win.
"I think I actually had a little trouble getting used to a serve coming from a righty, as weird as that sounds," he said. "Took me a little while to get on it."
He'll face another right-hander next, 25th-seeded Nikolay Davydenko of Russia, who beat No. 12 Guillermo Canas 6-3 6-4 6-3. Earlier in the tournament Davydenko eliminated No. 7 Tim Henman.
RUSSIAN RETREAT
On the women's side, top-ranked Lindsay Davenport needed just an hour to beat No. 13 Karolina Sprem 6-2 6-2 and advance to the quarterfinals. Sprem held serve only once in each set, while Davenport converted six of her 10 break chances.
But third-seeded Anastasia Myskina, the French Open champion, and No. 6 Yelena Dementyeva, the runner-up at the French and U.S. Opens, were eliminated.
They were among seven Russians to make it to the round of 16, but only Wimbledon champion Maria Sharapova and U.S. Open winner Svetlana Kuznetsova reached the quarterfinals. They were due to face each other on Tuesday.
Venus Williams, seeded eighth on the women's side, was to play No. 10 Alicia Molik of Australia in a night match later Monday as she tried to join sister Serena in the quarters.
Myskina sprayed forehands wide and long, and finished with 45 unforced errors, losing 6-4 6-2 to 19th-seeded Nathalie Dechy. She shanked a forehand to give Dechy match point and dumped another into the net to finish it.
"I couldn't focus during the match, I lost a lot of easy balls," Myskina said. "I think I have to forget this match."
Dementyeva led 12th-seeded Patty Schnyder by a set and two breaks before losing 6-7 (6) 7-6 (4) 6-2.
Dementyeva had 61 of the 116 unforced errors in her match. She saved a match point with a convincing forehand winner but then gave Schnyder another with a double-fault. The match ended when she dumped a forehand into the net.
"I had such bad luck - I was 4-0, 30-love and didn't take my chances. That changed the match," she said. "She started to play well, I just lost my rhythm, thought 'it's already over.' I don't know how I did it."